Daniel Nunez

Basics of Credit

Credit is basically a way to buy products without having any money. Its the ability to obtain goods or services before payment, based on the trust that payment will be made in the future. Its a promise to borrow money and pay it back in the future. With a credit card or a loan, a person can literally buy whatever they want without having money in their pockets (house, car, school), all they need is a good credit score. Credit score is a number/grade given to you by the credit bureau determining your credit worthiness. Your creditworthiness is divided into three categories; Capital, capacity, and character. This can all be found in your credit report and can determine weather you get a loan or not.

The 3 C's

Capital: The value of what you own (Savings, Investments, property) If necessary you will pay back with this

Capacity: Your financial ability to pay back a loan

Character: Sense of financial responsibility; Dependability

Credit Cards: What you need to know

● What is a credit card?

A plastic card issued by a bank, business, etc. for the purchase of goods or services on credit.

● Where can you use credit cards?

At any store pretty much or any business where you can build credit

● What are the benefits and costs of using credit cards?

Credit allows consumers to purchase more goods, creating more jobs for people to make those goods. The costs of using credit cards are if you go over your credit limit, if you make a late payment, and penalty fees.

You must use the following vocabulary words in this section:

● Annual Fees - A yearly fee charged by credit grantors for the privilege of using a credit card

● Credit Limit - the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit

● Interest Rate (APR) - amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets

● Penalty Fees - Fees charged if you violate the terms of your cardholder agreement or other requirements related to your account

● Over-the-limit fee - For each month that their balance exceeds their loan limit, borrowers are charged this type of fee